Limited Liability Partnership (LLP) vs Partnership

Selection of the correct form of business entity is the most important decision taken by an entrepreneur. To make choices simpler and assist you in taking a well informed decision, here is a basic comparison chart of Limited Liability Partnership (LLP) vs Partnership

Limited Liability Partnership – A corporate form of Partnership

Limited Liability Partnership has been introduced in India by way of Limited Liability Partnership Act, 2008. The basic premise behind the introduction of Limited Liability Partnership (LLP) is to provide a form of business organization that is simple to maintain while at the same time providing limited liability to the owners. It exhibits elements of both partnership and corporation. In LLP, one partner is not responsible or liable for another partner’s misconduct or negligence unlike a traditional partnership in which each partner has joint and several liabilities.

Partnership

Partnership is governed by Indian Partnership Act, 1932. It is the relation between two or more partners who have agreed to share the profits of a Business carried on by all or any of them acting for all. The partners can enter into a verbal or written agreement between them as per their discretion. The Registration of partnership firm is not compulsory.

The Comparison chart will give you a clear distinction between all the three forms of business.

Factors of Comparison Limited Liability Partnership Partnership
Legal Identity It has separate Legal entity different from partners No separate legal entity
Minimum Members   Designated Partners – 2 Minimum Partners – 2
Maximum Members No limit 100
Minimum Capital No minimum requirement No minimum requirement
Regulator Registrar of Companies Registrar of Firms
Compliance Requirements Annual Return Filing No mandatory compliances
Taxation Taxed at 30% Taxed at 30%
Cost of compliance As there are no compulsory compliances for a partnership firm, there are no cost of compliance as such
Liability Limited to Capital contribution Unlimited liability of partners
Credibility Medium Low
Investor Preference Medium Low
Statutory Audit Mandatory if Contribution is above 25 lacs or, if Turnover is above Rs. 40 lacs Not Mandatory
Conversion Can be converted into a Company by following the procedures of Companies Act Can be converted into a Company by following the procedures of Companies Act
Procedure
  • Obtain DSC (Digital Signature Certificate)
  • Obtain DPIN (Designated Partner Identification Number)
  • Name Approval
  • Filing for Incorporation
  • File LLP Agreement
 

  • Preparation of Partnership Agreement
  • Stamping and Notarization of the partnership agreement.
  • Registration of Agreement with the Registrar of Firms – Not compulsory, very expensive and time consuming

 

Time Taken for Registration 10 -15 Days 7-10 days
Relation inter se partners Partners are the agent of firm and the partners. One is responsible for the act of other(s) Partners are agents of the firm only.
Ease of closure An LLP can be closed by meeting certain conditions and following the procedures of LLP Act 2008. A Partnership can be closed anytime as per the conditions laid down in the deed or agreement.

Conclusion:

– Partnership firm, even if registered, is not a separate legal entity.

– LLP is comparatively a more organized form of business, hence has more credibility.

– Partners of a partnership are agent of one another, which makes all the partners responsible for any fraudulent act of one of the partners.

– And partners are personally liable to the extent of dues of the partnership. But contrary to this, in LLP, partners are not liable for the act of one another. They are only responsible for their acts and liable to the extent of their contribution.

Nikita Bhatia is the co-founder of VenturEasy, an online platform for Company registration, book-keeping, accounting, tax consultancy and legal compliances in India. A Chartered Accountant and company secretary by profession, she has wide experience in the fields of audit, accountancy, taxation and corporate governance.